Chaz

Treas. Reg. Section 1.105-11©(2) contains the eligibility nondiscrimination test for self-insured reimbursement plans. Section ©(2)(iii)(D) contains an exclusion from testing for employees included as part of a bargaining unit. I don't see the same exclusion in Section ©(3), which contains the Benefits test. Can an employer exclude collectively bargained employees when it runs the Benefits test for its MERP?

Can anyone explain why the IRS has a definition in the final regs of "change in the ownership of a corporation" (which would be a distributable event if reach more than 50% new ownership, etc.) and "change in the effective control of a corporation" (which would be a distributable event if reach more than 30% new ownership, etc.)? I realize that the language in the two definitions is different, but is there any event that will meet the definition of the former that will not be triggered by the latter?

Central Pennsylvania

Does anyone have any suggestions for a TPA for FSA and DCAP benefits for a small school district? Thanks.

I guess the phrase I should have used is "bona fide services" used in the definition of "Termination of employment" at 1.409A-1(h)(1)(ii). Putting aside what the definition of the "level" of performing services is, if he or she is working over 50% of the level worked at before switching jobs, there is no termination of employment. I guess I agree that you can look at it as if there is a SRF because he or she is required to perform substantial services in order to receive the compensation, but I go back to my cleaning person example and don't think it is necessary to look at it that way. Do you think that every time an employer gives an employee the option of terminating employment or changing positions, if the employee chooses the latter, there is deferred compensation and a 409A issue?

I agree that if, in the new position, the former leader would not be performing substantial services, the amounts would be deferred compensation. I just assumed that his/her new position would require such services.

I don't think there is a "promise" to pay more in the deferred compensation sense. Why isn't this any different than the university telling the leader, "we can either fire you, or you can work, for $10/hour, as a cleaning person? The leader doesn't have a right to the $10/hour when he/she takes the position in lieu of being involuntarily terminated; he/she has a right to $10 upon working one hour. I realize that a tenured position is more secure than a cleaning person's, but the principle is the same: The individual has to work to get paid. There is no severance or other payment upon taking the other position. What am I missing here?

I'm confused as to why this is an issue at all. Why can't this be analyzed as a simple separation pay plan? The compensation paid if the university leader stays on is a red herring. The compensation paid to him or her for the new position is not deferred compensation at all; rather it is compensation for performing services as a tenured faculty member. Can't it be looked at as a termination for "good reason" due to the material diminution in the leader's authority, etc?

That's the nub of my question: Can such an option agreement (or plan) provide for (i) exercise within the ST deferral period and (ii) if not exercised, the option lapses? If, under such circumstances, the option is not exercised and therefore lapses, is there an income recognition event (in some amount) nonetheless?

Let me clarify my question #2: If I have a discounted option and have "complied" with 409A in the sense that, say, the option is only exercisable during the short-term deferral period after vesting, is there an income recognition event if I do not exercise?

Two questions: 1-When will "payment" be made with respect to a discounted option (or other option subject to 409A)? 2-If the answer to #1 is upon exercise, what if the option is never exercised (because it is underwater, the optionee can't or won't come up with the exercise price, or whatever)? Will there be an income recognition event nonetheless?

Company wants to grant discounted stock options. Can the grants be structured to comply with 409A by requiring that the options be exercised either within the ST deferral period after vesting or only upon a 409A-permitted event (as specified in the grant agreement)? If so, how would it work?

Any updates on IRS enforcement of these nondiscrimination requirements?

Thanks for the quick answer. If it is taxable under Section 83, which I feared, then 409A isn't an issue at all (because there is no deferral of compensation). But I suspect that there are 100s if not 1000s of equity comp plans with provisions for acceleration of vesting upon retirement and I also suspect that many of the sponsors of these plans do not immediately tax the retirement-eligible grantees. Does anyone have any thoughts on this?

Equity comp plan provides for accelerated vesting upon participant's retirement (age 65 or older). Over age 65 participant receives restricted stock award with three year vesting. As such, despite the three-year vesting provision, because the participant is over age 65 participant can retire at any time and the restricted award will vest. Therefore the three year provision is essentially meaningless except to the extent that the participant cannot transfer the shares while remaining in employment before three years is up. Is there a "substantial risk of forfeiture" under 409A because the award is not "conditioned on the performance of substantial future services" such that the award must comply with 409A's requirements? I think that the answer is different than it would be merely under Section 83 but I don't know what the answer is. This seems to be a basic question but I can't find any authority that discusses it. I only find discussion stating that restricted stock subject to a SRF does not constitute deferred compensation. But I know that already. See page 41 of the final regs. Any thoughts are appreciated.

That's a good question, which I don't know the answer to, but the definition of "executive officer" has not changed from the old rules.

Employee's residence is in a big city. Employee travels each Monday to a temporary home near her employer, where she stays for the week. She returns home to the city each Friday. Can her transit expenses traveling each Monday and Friday be reimbursed under a qualified transportation plan?

Even if requiring full year's coverage under the FSA even for terminated employees meets the requirements of 125 (which I doubt), wouldn't the headache of collecting premiums from departed employees make it just not worth it for employers?

I would make sure that any correction that you do complies with your state's withholding laws.

Bueller? Bueller? Does anyone have any insight on this?

I can recommend the "Multistate Guide to Benefits Law." It is published annually by Aspen Publishers.

The plan provides for election changes upon a qualified change in status and we are going to allow the change in accordance therewith. My question deals with what happens to the FSA account.

Here is an interesting one that I have not seen any guidance on: Employer's cafeteria plan provides for $X credit to FSA feature if employee opts out of medical coverage. Say employee uses all of the $X on day 1 of the plan year. Then, at some point, a qualified status change occurs (e.g., the employee's spouse loses coverage) allowing the employee to make an election change. The employee elects medical coverage under the employers plan (which if the employee had done so during open enrollment would have disqualified him from receiving the credit to the FSA). Is the employer out of luck with respect to the $X reimbursed? What if the employee only used a portion of the $X? Is the employee entitled to use the balance over the remainder of the Plan Year? Any thoughts would be appreciated. . . .

Under the new executive compensation regulations, do issuers have to disclose ESOP allocations in the "All Other Compensation" column of the Summary Compensation Table? My reading of the regulations indicates that they do, but I have not seen one proxy statement filed under the new rules that include such disclosure (although issuers do disclose company contributions to 401(k) accounts). Any advice would be appreciated.

Under the NYSE's listing standards (as approved by the SEC), issuers are required to obtain shareholder approval of material revisions to equity compensation plans. If a issuer wants to remove a minimum five year vesting schedule in a restricted stock plan to make no minimum vesting period required (so that "restricted" stock can be awarded that is immediately vested), is that a material revision requiring shareholder approval because the plan is now authorized to make a new form of award? Thanks.